7th Inning Stretch: The Scorecard

A lot of strategists, money managers, and personalities out there love to get on TV and share their ideas about stocks, the markets, and investing with the world. But which of them are worth listening to? Which of them are news? Which are just opinion? Which are entertainment? Join Oak Harvest as we take a look and give our “scorecard” for what’s been good and not-so-good in the world of the financial media.

 

Chris Perras: Hey, Happy Friday. I’m Chris Perras, Chief Investment officer at Oak Harvest Financial Group. We’re an independently owned investment management and retirement planning advisor located right here in Houston, Texas. Welcome to our September 3rd Stock Talk podcast: Keeping you connected to your money.

Well, we’re beginning September and we’re entering a period of the quarter that my frequent listeners know I refer to as the dead zone. Why do I call it this? Well, I call it this because starting that third month of every earnings reporting quarter, companies and their management teams increasingly enter what is known as a quiet period. This doesn’t mean that things are quiet. No, it means this is the time of the quarter when direct company initiated information on how their businesses are doing slows and eventually ends. Companies can comply with the SEC and federal insight information laws and Regulation FD rules.

Investors are left trying to filter out noise and determine for themselves if and what macro or tangental information might be relevant to their investing time horizon. If anything, the noise level rises. It doesn’t fall during this time. Additionally, the window for company-initiated stock buybacks peak and begins to decline. As this happened, short-term volatility normally tends to rise. Given we’re entering this time period of slower news flow, combined with a stock market rally approaching 17 months in a cycle that is normally about 24 months long, I’m titling this week’s piece 7th Inning Stretch: The Scorecard.

Before I get into the meat of this piece, I want to emphatically state, I am not doing this to embarrass anyone in the financial community. I’ve done this long enough to know that our own outlook and forecast will prove to be horribly inaccurate at some point in the future. We will likely end up on the bottom of this list with many others. However, with our client and primary prospect base still tending to watch a lot of network TV, I get a lot of questions. I get a lot of questions from clients about analysts, strategists, economists, chartists, politicians, hedge fund managers, and even some sports personalities whose views on investing are presented as news across TV financial news channels such as CNBC, Fox News, and Bloomberg.

Here, in early September, I feel compelled to compile a 7th Inning Stretch Scorecard. Once again, this is not meant to embarrass anyone or to shame anyone. As a former boss of mine used to say all the time, I’m not as smart as I think I am now and I won’t be as dumb as they think I’ll be in the future. We all make mistakes, but I want to provide a scorecard of who I think has been helpful at divining and forecasting this stock market cycle. Who has been generally correct on its path and height? First, who has been consistently providing what has been noise, not useful information and data, or flip-flopping their opinions, and a general hindrance in sticking to your financial plan if you’re listening to them.

For my listeners, know I’m not going to list every name and position of everyone I see on TV here during the podcast. I’m only going to touch on the highlights and a few low lights. We are doing this as part of our ongoing emphasis to clients and prospects of trying to get each one of you to think before you act, to slow down and determine is this news or noise before you react emotionally in your financial affairs.

The best of the best of the last 15 months, who are these few individuals in my book? Put these people in the category of- they usually speak very infrequently, but when they do, they’ve been correct on timing levels and direction of this bull market. Either that or they’ve been helpful at explaining and forecasting the path of the COVID virus before it happens, which in turn has been very helpful at being ahead of the curve the last 18 months. Put these on the list of those on TV, when they’re being interviewed, they’re a must listen to. That’s a shortlist in my book.

First, David Tepper, hedge fund manager for Appaloosa Management, is at the top of my list. He appears infrequently on TV, keeps it simple, and he does not seem to stray from his asset expertise, which is far broader than almost anyone I know in the business of managing money.

Next up on the list, Rich Ross, who is chief market technician at Evercore ISI Research. Rich has been early incorrect at staying on this bull market. In fact, he’s the first sell-side researcher that I know of to publish what seemed at the time an impossible year-end target for the S&P 500 for 2021. What was that target? It was 5,000. He published it under the [unintelligible 00:05:07] saying, “Pace slows, everything goes,” and another one on large-cap technology FANG stocks that says, “Never get out of the boat.”

What is really amazing is that his 5,000-target on the S&P was first published way back in the first quarter of this year. He didn’t just jump on this fast-moving train after it left the station months ago. He didn’t just raise his forecast on the S&P 500 by almost 1,000 points to catch up to where the market is, like a number of people have done recently the last few weeks. That is, it’s called stepping out on the ledge well before others and well before the fog of uncertainty clears.

Besides Rich, if you’re into technical analysis, the pickings have been slimmed down a bunch. The other two technicians who have been consistently calling this bull market correctly are Larry Williams, who’s the founder of I Really Trade service, and Rob Sluymer, who’s formally Tom Lee’s technician over at Fundstrat. Both of these technicians have stepped out of the public limelight in the last 12 months. Larry Williams’s work was the first technical piece I saw in late March of 2020 that talked about where the market stood technically, and he nailed the lows in the market back then.

Outside of finance, I think former commissioner of the FDA, Dr. Scott Gottlieb, has been fantastic at clearly and concisely explaining from a medical perspective the forward path of the COVID virus, its spread, and our vaccine strategy. Although not his goal, he has helped on the investing side the last 18 months. I listen to him whenever he speaks. Next on the list of worth listening to are a group of strategists, as well as two portfolio managers that have been almost universally bullish the entire cycle. They’re not quite as high in my rankings as a few of them have tried to call twists and turns a little too much in my book or they’re just on TV way too much.

If you’re a retiree or pre-retiree investor and not a short-term trader, the economy, markets, and world do not change that much or that fast. It doesn’t change minute by minute, day to day, week to week, or even rarely changes month to month. On this list in the category of strategists are Tom Lee of Fundstrat. He’s the first one to call for an everything rally. David Kostin, Chief US Equity Strategist at Goldman Sachs, who is the first strategist at a large known US investment bank to put 4,700 to 4,950 as his target for the S&P 500. There’s Brian Belski of BMO Bank, Terry Dwyer of Canaccord Genuity are two others who have stuck to their data and had been worth listening to. Three frequent CNBC guests who actually pull the trigger on real money for their clients also fall into this category. Josh Brown of Ritholtz Management, also widely known as the Reformed Broker, Stephanie Link, and the options trading brothers, Pete and Jon Najarian also get my nod.

Before I continue, I want to place a shout-out to Jim Cramer of Mad Money fame on CNBC. I place Jim in his own unique category. Why? First, because his show is on almost every day. I think his show as much as anyone on financial network TV is consistently worth watching. Why? Because while no one will ever agree with everything on his show, he tells you right upfront each and every day when his show starts honestly what his goals and objectives are for the show.

What does he say every night? He says this. He says that his show is meant to educate and entertain, to coach, and to teach. To me, he accomplishes that on all accounts. You know what he does not say? He does not say he’s trying to forecast and predict the markets in the S&P 500. Guess what? He brilliantly stays in that lane on point each and every show. That’s probably why he’s been on TV for well over 16 years now.

Congratulations to Jim Cramer, and thank you for entertaining and educating your listeners, which moves me to the noise part of my list. For now, here are the two broad categories. There’s noise and there’s something I call WOT, short for waste of time. Let’s start in the noise category. Two highly promoted shows on CNBC, Fast Money and Options Action, these are noise at best to longer-term investors. The majority of the regular Fast Money crowd have been consistently bearish the last 15 months and kept those regularly tuning in out of the rally at worst and flip-flopping at best.

As I previously mentioned, my ears do regularly perk up for the Najarian brothers, not because I want to trade options off their knowledge, but rather because they look at data that tends to lead the markets and individual stocks. They look at data that leads, not lags. Options Action? You’re kidding, right? You are getting your option trades from a TV show on a TV network? Regardless of how good these individuals are at structuring and trading options for their own portfolio, this is a show about noise for the long-term investor.

More groups that fall into the noise category in my book. Retired billionaire hedge fund managers talking about what they are doing personally with their money. Well, unless you’re a billionaire or close, maybe a couple of hundred million in net worth, this is meaningless noise. The size of their wealth or anyone else’s for that matter means almost nothing to their current investment prowess and your portfolio.

They almost all made their fortunes managing money for other people as their business when they were younger and they were taking much bigger risks, and now they’re retired just like you. They just have a bigger nest egg and can play around with asset classes that you can’t invest in or won’t move the needle for them or you even if you could. Best case in point I can think of is John Paulson. Now, listen, John Paulson is brilliant and made fortunes, as in billions by focusing and doing one thing better than everyone else in the world. What did he do? He researched and anticipated the 2008 financial collapse before almost everyone else.

Then he had the guts to push near all his savings and capital and a hell of a lot of other people’s capital too by way of huge borrowing and leverage into one very concentrated bet against the housing market, and he won. He won huge. I’m not saying he won the lottery because he did the work and the research and made an informed investment decision. He forever changed his own legacy, but you know what he did? He specialized and more amazingly, he did it one more time by then reversing his decision early in the recovery. He went long and bet as an optimist on the recovery, he did it in a way that if he got both the price and time right, it moved the needle for himself and his investors. In those two trades over only three years, he became an investing legend and a hedge fund hero.

He became a legend whose returns during the rest of the bull market from 2010 through 2020 were so mediocre that after 10 years and large redemptions, he shut down his hedge fund and said, “You know what? I’m set. I don’t need a bigger bank account, I’m not having fun and I’m going to enjoy my retirement and my family business.” You know what he’s doing now? [unintelligible 00:13:09] bank account. He’s a lot like you. He’s retired and he’s looking to diversify his investment. He’s looking to stay retired and spread his chips around the table.

Also in the noise category, current macro investors who are in the media on a daily basis who have taken up book writing and economic philosophy instead of managing their client’s money. Another group, bond managers who come on TV and talk about every asset class in the world except the one they specialize in and are paid to manage. Listeners, I personally think they all want to be David Tepper whose initial financial career was in the junk bond market, more noise-makers. Any one-hit wonder for the last 25 years, man, I’m with you, I love hearing these stories, and most of these individuals are way above my mental level, but ask yourself, outside of their one investment, the one that gets all the press, have they helped navigate the current bull market? How many of their brilliantly thought out economic theories or big investment ideas that they talk about on TV helped their investors, helped you, or made money versus being invested in an old boring stock market that grows with the overall economy?

Also on that list, style managers, meaning those who manage 100% value or 100% growth stock portfolios. If you hear them pontificating positively on their strategies, or even worse, talking about the macroeconomy, it’s noise. In 25 years of managing money, I have never heard a style manager come on TV and say, “Avoid my style. It’s going to be horrible for the next 10 weeks, 10 months, or 10 years.” Never, it doesn’t happen. Marketing departments won’t let it. Technology stocks before and after the internet bubble, almost always a rosy outlook. Energy and material stocks, after China cut off the spigots in June of 2008, hardly a negative whisper from most sector specialists.

Another class of investor, a retiree or near-retirees, you should largely ignore on TV, I like to label the maturity mismatch investor. Some of these are short-term traders, we’ve already discussed. Others include venture capital investors on TV. It’s a totally uninvestable asset class to most, except a very few wealthy people. To me, it’s an educational illiquid noise. Private equity, interesting but also noise. Their model is illiquid, 100% control, financial leverage, and time horizons. Can you as an investor handle no liquidity, lots of debt, and not getting your money back for 10 years? Most public investors and retirees can’t or won’t. To me, most of these guests are entertaining noise.

For investment purposes, as an everyday man or woman saving and investing for retirement, or more importantly, in retirement, before you listen to a TV commentator or other news source, try to throw up a fast screen in your brain, slow it all down, and ask yourself these questions.

One, what is this individual’s expertise and area of specialization? Two, have they been proven to be good at being a source of information in the past? Three, are they sticking to that topic? Four, do they have both knowledge and an understanding of my specific financial goals? If so, then listen to them and learn. If not, then it’s okay to listen, but remind yourself, you are most likely listening to entertainment, not educational or investment purposes. That’s okay to do if you want to see it for what it is, which brings me to my final category.

What category is that? That’s the category of WOT, waste of time. Go ahead and turn the channel for all but entertainment purposes. This unfortunately is a big list and here it goes. Number one, strategists who’ve been consistently wrong this cycle, those consistently calling for a minus 10% correction at best and bubbles and collapses at worst. Isn’t the saying the trend is your friend? Well, given they’ve been early in their eyes and wrong on the scoreboard, why isn’t anyone asking them, “Why now?” Why suddenly are you going to be proven right? Why is lightning going to strike this week or this month?

Number two on the list, any economists quoting daily, weekly, or monthly economic data. In today’s age of technology, their data is late and stale. While it makes nice charts, you can find leading data series for free on the internet on your own. Number three, business and financial journalists writing under the guise of investment ideas and opinions versus education and facts.

Number four, 99% of the newsletter writers, they are usually great writers, unbelievable self-promoters, and fantastic entertainers. Their business is subscribers, not managing your wealth. If you want to subscribe, look at it as entertainment. Number five, 99.9% of social media influencers and TV contributors, code for “I’m getting paid on the backend of this”. Number six, politicians talking about financial markets. Number seven, entertainment and sports figures talking about their money. Finally, number eight, stock tips and cocktail party talk by friends and family over how much money they made on a certain asset.

While some listeners may take this entire podcast as a rant, the crux of my message is once again this. For investment purposes, as an everyday man or woman saving and investing for retirement, or maybe more importantly, in retirement, before you listen to a TV commentator or other “news source”, first try to throw up a fast screen in your brain, slow it all down, and ask yourself these questions.

One, what is this individual’s area of expertise and specialization. Two, have they been proven to be good at being a source of information in the past? Three, are they sticking to that topic? Four, do they have both knowledge and an understanding of my specific financial goals? If so, then listen and learn. If not, then it’s okay to listen, but remind yourself, you are most likely listening for entertainment, not educational or investment purposes. Even that’s okay if you see it for what it is.

I’m Chris Perras at Oak Harvest. We’re comprehensive wealth management and financial planning advisor located right here in Texas. Give us a call at 281-822-1350. Call us and speak to an advisor and let us help you craft the financial plan that is independent of the volatility of the stock markets. God bless and have a good weekend.

Male Speaker: All content contained with an Oak Harvest podcast expresses the views of the speaker and is for informational purposes only. It is based on information believed to be reliable when created, but any site of data, indicators, statistics, or other sources are not guaranteed. The views and opinions expressed herein may change without notice. Strategies and ideas discussed may not be right for you and nothing in this podcast should be considered as personalized investment, tax or legal advice, or an offer or solicitation to buy or sell securities. Indexes such as the S&P 500 are not available for direct investment, and your investment results may differ when compared to an index. Specific portfolio actions or strategies discussed will not apply to all client portfolios. Investing involves the risk of loss and past performance is not indicative of future results.